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I like to look for FTSE100 for the best stocks to buy. And recently the cheap NatWest Group (LSE: NWG) the stock price caught my eye.
At current prices of around 224p per share, it looks like this popular banking stock offers particularly good value from an earnings perspective. It also doesn’t seem too expensive considering its earnings outlook.
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A high dividend stock
City analysts expect NatWest’s profits to fall 8% in 2022 as economic pressures in the UK worsen.
It’s not really cause for celebration. But that means NatWest’s stock price commands a forward price-to-earnings (P/E) ratio of 10.6 times. That’s a little above the industry average of around nine times for the big banks, but it doesn’t seem expensive.
NatWest’s current stock price seems really attractive when considering the dividend yield, however.
Calculators believe that NatWest will increase the annual dividend by about 25% in 2022. This creates a hefty dividend yield of 5.8%.
NatWest’s return beat the broader FTSE 100 average by 3.5%. It also exceeds the yields of Lloyd’s (5.3%), Barclays (5.2%) and HSBC (4.1%) among others.
Prices on the rise
As I said, 2022 is shaping up to be a tough year for banks as the cost of living crisis deepens.
However, a rising interest rate environment is mitigating the impact for NatWest and its near-term peers. And in the medium term, they could significantly boost the profits of the FTSE 100 company.
Higher interest rates are good for banks because they increase the profits they make from their lending business. Comments from a senior Bank of England politician suggest more could be coming very soon.
More good things!
There are also other reasons to love NatWest today. The bank is one of the top five mortgage lenders in the country, giving it significant exposure to the ultra-robust real estate market.
NatWest is also financially strong and had a CET1 capital ratio of 18.2% in December. That means it could continue to offer above-market dividends and take other steps like more share buybacks.
Should I buy NatWest?
That being said, I myself don’t find NatWest all that attractive, even despite its cheap stock price.
I believe the bank could see its income plummet as the UK economy comes to a standstill. It could also be hit by a tsunami of bad debt as the cost of living crisis deepens.
Meanwhile, the competitive threat posed by challenger banks like Monzo and Starling Bank continues to grow. This is a long-term problem and NatWest will have to spend a lot to keep its market share from slipping.
I also don’t like NatWest’s lack of exposure to fast-growing international markets. This threatens to have a significant impact on future earnings growth.
Those big dividend yields at NatWest certainly look appealing. But they are not enough to encourage me to invest in the FTSE 100 bank now.